Despite growing operational complexity and a period of industry-led change, office furniture suppliers say they remain optimistic.
Neither a move to short-run mass customization, a “mix shift” of product types, talent shortages in an era of near full employment nor the effects on trade from domestic political upheaval can faze the battle-tested supplier executives who weathered the Great Recession. Still, they’re focused on improving their operations, further diversifying their customer base and embracing new challenges in data management, to name just a few.
Prior to the annual NeoCon trade show, MiBiz convened an executive roundtable, sponsored by The Right Place Inc., to discuss issues and trends in the office furniture industry and how they’re affecting the supply chain. Participating in the discussion were:
nTara Fowler-Bartman, project manager at Sustainable Research Group LLC, a consultancy in Grand Rapids that helps office furniture companies with third-party certification of their products for industry sustainability standards
n Kevin Kuske, president of Grand Rapids-based Genesis Seating, Davidson Plyforms and Grand River Polishing, all of which are part of the Leggett & Platt work furniture group, which manufactures private-label products
nRick Van Dis, president of Grand Rapids-based Rapid-Line Inc., a metalforming company that recently completed a transition to an employee stock ownership plan, or ESOP
nKyle Verplank, president at Light Corp., a Grand Haven-based manufacturer of lighting systems
Here are some highlights of the conversation:
What’s your 30,000-foot view on the current state of the office furniture industry?
Verplank: The trend that we’re seeing right now, from our perspective, is really the need to have a lot of choice and customization relative to not only the type and number of fixtures, but the finish. There’s a lot of the ‘resimercial’ trend pervading the space … a lot of the blurring of the lines between the office and the home. And I think one of the challenges with the trend is, how do you customize beyond what maybe your core competency was set up around. So, we do a lot of powder coating, but what does that mean in terms of textiles and different fabrics, and things like that. Just the complexity that small-run customization drives into the supply chain is a challenge.
Kuske: There’s a huge desire at the designer and the customer level for variation, driven by a desire to be more residential in the office in feel and look. That’s driven a tremendous amount of demand into soft seating, styles of lighting, different typologies of work. And that’s just driving a lot of variation into the supply chain. On one end, that’s good, because variation is something that the OEMs don’t like to deal with in their own factories, but then it does mean you have to deal with it. And becoming very good at low volume, high variation (business) almost becomes a specialty.
Van Dis: Just a year ago, the employees (at Rapid-Line) purchased the company, so we’re 100-percent ESOP at this point. So … we’re heavy into culture change. How do we be the fastest out there? QRM — quick response manufacturing — is our mantra. How do you manage that with all the customization? Trying to manage and employ a workforce in West Michigan’s pretty difficult right now, especially as some of the OEM office furniture folks are sending letters out to their old employees bringing them back. We’re left trying to grab some folks that are interested to learn and be trained and bring them up in the business. The other interesting thing for us is we’ve always supplied the OEMs — that’s been the core of the business. But this year, we are coming out with some of our own products. We’re starting to prototype our products and we’re going to start with the outdoor shows and things like that.
Fowler-Bartman: We are working solely on the sustainable product certification (under the BIFMA E3 sustainable product standard). We are involved in the development of the standard, and it just recently went through a new revision that’s expected to be released probably later in 2017 or early 2018. It’s changed quite a bit from the current version that’s out. It’s really heavily focused on supply chain data all the way from the point of raw material extraction through the gate where the product leaves the facility and goes out to the customer. … It’s structured so that it’s much more difficult this time, and our smaller companies are going to be really reliant on the supply chain to collect that information. The points are shifted around so much that some of these have to come directly from a supplier in order to earn enough points just to get that level 1 certification, which is your minimum level.
Let’s dive into your outlook for the industry, which has had to deal with spotty order volumes in recent months, according to BIFMA. What are you seeing in the market?
Verplank: From our perspective, it’s been pretty flat and volatile — one month good, one month bad. I think the latest BIFMA statistic showed a pretty significant year-over-year decline in bookings and revenue. I think we’re going to continue to see the volatility and probably minimal growth at best.
Kuske: It’s not one answer across all segments of it. There is a mix shift happening within the industry. That means you might run into people who have different perspectives. They aren’t about the industry doing anything different, it’s just they’re sitting in different sectors. If you’re sitting in the area where a lot of this renovation in the collaborative space is going on, it feels like it’s growing. If you’re sitting in kind of the task/office area, it doesn’t feel like it’s growing, it’s more volatile. It’s not homogenous all the way through.
Van Dis: Absolutely. That’s part of the reason why we’re looking at some of our own products. There are elements of the furniture business that are OK, and other elements — we’ve watched them come down. If you think about the typical user now or the typical office, you don’t walk into a panel structure anymore. It’s a backpack, it’s an inexpensive chair and it’s a table that’s movable, up and down and rolled around.
Kuske: We don’t really play in the adjustable table (market), but they’re scrambling to keep up with shipping them. Demand for soft seating, sofas, couches, (those manufacturers) are struggling to keep up. With task chairs, not so much. … More manufacturers on the contract side are figuring out how to make the stuff look more residential, and more residential players are figuring out how to make their stuff last.
Given the level of volatility in the market, what best practices or strategies are your companies using to manage in the new era of unpredictability?
Van Dis: We’re trying to diversify. The office furniture’s been a big part of our business. We’re really working hard to get more of the (fabrication) style business with a different customer base.
Verplank: For us, it’s trying to leverage the know-how around our core products and get more content in the space in different applications. For example, a lot of our business had under-bin task lighting. Well, when the panel systems go away, so do the lights. The need for lighting is still there, but we have to deliver it in a different application or different form factor. For us, the challenge has been coming up with novel ways to bring lighting back into what really is a new way of working.
Kuske: Davidson is similar in the sense of diversifying. The desire to bring wood back into environments is really strong and that’s what’s pulled us into recreational vehicles. We do fan blades for Big Ass Fans. Automotive companies are looking to do things with wood, so we are very much looking to diversification. Genesis sits right in the middle of that soft seating trend. We have no variability, it’s just trying to keep up with the growth. There’s just a lot of demand there for craft upholstery.
Given the volatility and uncertainty, how would you describe your sentiment, looking ahead through the end of the year and into next year?
Van Dis: Actually optimistic. We’re already seeing a lot more quote activity and folks checking us out, just because they’re pulling back out of Mexico. Some of the folks that made heavy investment there are now wondering, ‘how are we going to undo this?’
Kuske: I’d say we’re very optimistic, but people are building contingency plans. There’s still a lot of risk, especially at the OEM level. I don’t think there’s any certainty on what will come.
Specifically, are you talking about what could happen if the administration were to renegotiate or pull out of NAFTA?
Kuske: Yes, there’s definitely been a lot of conversations and interest in that area. Obviously, it would be great for West Michigan from an employment perspective, but I think we would be right back to the challenge that we’re basically at zero unemployment. Those that are unemployed don’t have the skills that they need and we’ve not as a community figured out how to bring those two things together — develop the skills that are appropriate for the jobs that are out there.
Van Dis: Definitely there’s more investment in automation. It’s difficult finding people with the skill set to run the equipment. There’s this whole industry 4.0 vision, which is great, but you have to have people to support that to a certain extent. And they’re a little more hard to come by.
Verplank: It’s hard to say where the industry’s going to go, but I think, if anything, it’s maybe more comforting in the business model we have. And if the trend were to continue, that would help validate the business model in terms of local production. We’re a bit of a novelty in lighting, in that the bulk of our competitors don’t make any in the U.S. So, if that trend does kind of come to fruition, assuming we’re doing the right things, it should validate the business model.
Are more OEMs seeking U.S.-made products or pushing for reshoring?
Kuske: I think some of it started with … that demand for customization, complexity. The other trend that’s out there is speed. Each of the OEMs today is very focused on lowering lead times and 100-percent perfection from an order perspective. There’s zero tolerance for missing or splitting a shipment. The more you drive from a six-week to a three-week to a two-week (lead time) and you want a highly complex product configuration, that more than anything has supported the (reshoring) trend here.
Verplank: Yeah, I think that model’s very common in automotive. It’s not low-cost country production, it’s localization relative to end user. Primarily, our customers are in the Midwest, so that’s kind of why we’re here.
With BIFMA’s sustainable product certification asking companies to dive more into their supply chains, what does that mean for downstream manufacturers or components suppliers?
Fowler-Bartman: (OEMs) are going to be really dependent on supplier data, especially if they are buying raw materials and converting them into a usable component. I guess if I were a small or medium-sized manufacturer looking at this, I would encourage my suppliers to work with their suppliers. It’s going to be a long road and process to pull the data together that’s going to be required to earn just a minimum number of points to get this (BIFMA) level certification.
Van Dis: Where we play, we’re far enough down the food chain that it’s a little more diluted by the time it comes to us, unless we start to talk about some of our own products. I’ve got background with some of that, so I know it’s coming.
What’s driving the push to ‘resimercial’ products like soft seating?
Kuske: I think the question is: Why did we ever go in a direction where the offices were what they were? They headed for a while to this very corporate, almost sterile type of environment. If you look at where people gravitate to out of work, that’s not what people gravitate to. … So it’s really just to make spaces more competitive at a talent level — establish the brand that the company happens to (have) and try to bring in talent.
Verplank: The up-and-coming generation demands different things within the workplace than the older generation. The advent of technology and the mobile worker really changed the dynamic in the space. For us, it’s trying to understand: What does it mean if someone no longer has a permanent desk? … It’s trying to say: What can we do with lighting that’s maybe beyond just illuminating a workspace? It’s trying to understand what they really need in the space, because it’s very unconventional from really what we’ve done in the past.
A recent Wall Street Journal article noted that companies like IBM are starting to bring some of their satellite workforce back to the office, which could become a new trend. Have you started seeing that at all and does that affect your operations?
Kuske: We tend to deal with the world like a pendulum. You know, we swing (one way), we swing (the other way) and we come back. There are some companies that are asking people to come back. It’s usually driven by creativity and project teams, and realizing that, for all the technology, people still work best when they can sit next to somebody, look somebody face-to-face, and do that work. I personally haven’t seen it as a huge driver of anything yet.
Verplank: I think on the pendulum, we’ve seen the panels go from high, to next to nothing, and now it’s starting to swing back. They’re creeping up because the (lack of) privacy and the sense of distraction with the totally open office has really turned a lot of people off. Architecturally, I think the open system looks phenomenal on paper and in a magazine. But I think in application, depending on the type of work you’re doing, it can be not as attractive to the actual user.
Kuske: Visual privacy is becoming more of an issue. You’re starting to create more vertical space where people just don’t have that visual distraction of what everybody’s doing. You also don’t tend to hear people as much if you don’t see their mouths moving and you’re watching them talk. I think there’s a little return to trying to provide somewhere in between. I don’t think it’s going back to everybody with a private office. It’s also not going to stay at everything in a complete open plan.
Are you seeing companies trying to extend the lifespan of some of their product lines by adding more connectivity or technology?
Kuske: I think it’s almost the opposite, in the sense that there’s an interesting marriage when you try to put furniture and technology together. The life cycles are so different. I think the more successful ones have been when there’s a relationship between the two but the technology can change and the furniture stays. We’re still an industry where the life cycles are crazy long compared to other industries. Our product life cycles are 20 years plus. Today, technology changes in a fifth of that. I think that’s actually still a challenge of how you bring the two together in a way that the technology can continue to update, but you don’t have to change out the furniture for that to happen.
Verplank: What we’re seeing from a technology perspective is the need to put more technology in the light. So the light is considered mobile, relative to it’s not a table or system. That seems to be a little easier to change out than, say, an installed systems base that’s got panels, screws, everything like that. There’s definitely a desire to put more technology at the user interface. It’s rather easy, comparatively speaking, to change out an outlet in a light as opposed to redesigning a systems line with a whole new power grid and things of that nature.
Van Dis: We’ve seen just a little bit of folks starting to try to blend technology with some of the older products. I wouldn’t say that it’s changing the market, but it’s enough to be interesting. It’s usually project-specific for us, but when it’s a project, it can be a pretty good project.
It’s no secret that manufacturers are struggling with talent concerns in an era approaching or at full employment. What are your companies doing to attract workers?
Van Dis: I’m changing policy to make it easier. It’s harder to be flexible in a manufacturing environment, where teams of people need to come together to make a product. But (we’re trying to be) flexible in terms of more days off, earned vacation. … Your raises are almost (entirely based) on your attendance and how much time you’re there. We’re really trying to get them to come to work, and we are revisiting our wage structure. We are trying to value our employees differently, in a positive way.
Kuske: We have to think more about our jobs as skilled trades … (and create) the awareness out there that the jobs exist. It’s a little bit of a catch 22. If we don’t, the jobs will go somewhere else. If we can, you could build a base here. We need probably 12 other manufacturers who need some level of upholstery sewing to create demand. You can’t do it on your own. We’ve been working with The Right Place and trying to find other companies that want to do the same thing. It’s a lot more work than it used to be. You can’t just post a job and get 10 applicants and pick the one that you think is great and go from there. Ironically, we spend more time and effort on hiring in the factory than we do in the office. It’s easier to find talent in the office than it is to find talent in the factory, which is an interesting switch.
Verplank: Outside of trying to create a great work environment, one of the things we’ve done relative to retention is to try to provide insight into the business to everyone. We’ve taken a very transparent perspective, almost going as open-book as we can, relative to what we’re sharing with the entire organization. … We’ve made a lot of fundamental changes, and I think anytime you drive a lot of change (it brings) uncertainty. We’ve really tried to say, here’s what we’re seeing. Share the good with the bad. I think that goes a long way in terms of giving people peace of mind relative to what kind of work environment it is today and where it’s going tomorrow.
Kuske: And that transparency builds trust. I do see, even across all the generations: If they’re there and they’re committed, they want to know what the business is doing and what part do they play in it, and how secure is it and what are the issues that are out there.
Van Dis: The biggest thing we’re trying to work on is culture, and it’s difficult. There’s folks that haven’t been involved in decision making, and now you’re asking them to participate, and help them understand data and make decisions. That’s different. Some folks don’t like it yet. But many are coming over. They see the light. When I look at the factory, I look at it six months ago to where it is today, it’s a much better environment for our employees.
At what level do employees get to make decisions?
Van Dis: We’re trying to push it right to the bottom. I’m asking them to take charge of the issues that they’ve got each day. It helps them understand where can they get the biggest impact and allow them to implement some of that. We’re having some successes. We haven’t lit the world on fire yet. For being eight months into it, I’m really happy with how far we’ve come. But every inch, we have to fight for it, because it’s culture.
How are you dealing with the aging of the manufacturing workforce within your company?
Kuske: I have 40-year employees that came in through the businesses that were bought and I’ve got a huge mix of people who’ve been there for 90 days.
Van Dis: There’s a definite age difference. There’s (a group) in their mid 40s up to just before retirement. Then there’s this giant hole, then there’s this group that’s 30 or less. And we struggle with that. I think as a nation, we’ve outsourced machinists and that knowledge for the last 10 or 15 years, so we’ve lost a generation of folks that are machinists. But I’m encouraged that there are more younger people getting into it.
Verplank: We see pretty much the same perspective you have. We kind of have a chunk at the top and a chunk at the bottom. And that middle 30s to 40s range is pretty light at the moment.
With tons of variation driving short runs and very customized orders, how are your companies managing that?
Verplank: There’s a lot of digital information that is driving a lot of the supply and demand so as the short-run complexity accelerates, the need for strong operating systems is greater than ever.
Kuske: It’s really data management. The quality of your data drives a lot of your ability to be able to do that (customization). ... You have the build processes and systems to be able to do it. I think skills around inventory management, which once might have just been nice to have, now become much more critical. You can’t just be good at manufacturing. You have to be good at working on data management and inventory management and all that.
Van Dis: For us being able to support the customization, we take a lot of inventory positions at the lowest level position with the strategy of postponement. You keep (the material) in its lowest form until the last minute and then you change it. Rapid-Line is set up with so many capabilities. We can do almost anything in a short period of time if we’ve got the base material.
Does the trend to greater customization present business opportunity for nimble companies?
Kuske: There’s a lot of opportunity for smaller suppliers to come into some of these supply chains as a tier two or tier three and take on some of this, which to them would be a very attractive business but to the OEM might be too small. That’s another critical thing, to develop some of these suppliers in the area to do some of this business on short cycle times. (It does) create some nice small business opportunities for people to jump in and take on a niche and grow, which obviously would be good for West Michigan manufacturers.
What’s the appetite for M&A in the office furniture industry?
Kuske: We recently made an acquisition here locally, which was MoIron. I see us continuing doing that because there’s lots of great businesses. A lot of them are looking. In many cases, because of the age gap they’ve described, there may not be a succession plan there. On the industry side, if I’m an OEM, I have a couple choices to fill that gap in the portfolio. I’ve got to do rapid product development, investment, and I may or may not know how to do it. I could do a partnership. Or, I’ve got to go acquire somebody. So I do think all those things are on the table very much, and people are looking at it and doing it.
As you look out to the end of the year and into 2018, what are some of the things that are keeping you up at night?
Kuske: One would be talent development, retention and recruiting. Then the other would be speed, whether it’s the product development side or the manufacturing side, and being able to execute flawlessly in shorter time periods because the life cycles are shortening. If you have a desire for all those variations, you’ve got to be able to act quick. You can’t take five years to get to market because the market won’t be there anymore.
Verplank: It’s trying to understand the market desire for our products. I think depending on who you are or where you are, you value different things relative to lighting. For us, how do we cater to the various needs of the market but also be mindful of what we’re truly capable of in terms of not being able to be everything to everyone.
Van Dis: Talent, absolutely. Growth is probably a bigger concern for us as an ESOP. We want to do well by our employees. Down the road, we want them all to retire well. I also get a little concerned over cost. We’ve enjoyed a period of relatively stable commodity pricing, but at some point that’s going to flip. It just seems like the ability to share that up and down the supply chain is going away.
Fowler-Bartman: For my perspective, not being a manufacturing company but working with them, the thing that concerns me the most is just the reliance the smaller manufacturers are going to have on the supply chain to provide data related to the components that they manufacture for the final product. With Steelcase, Herman Miller and the big companies, their suppliers are willing to do anything for them. The companies I work with are smaller pieces of that puzzle and don’t necessarily get the response that the bigger companies do. In order for them to be successful and meet their goals to have their products certified, in order to be able to sell them to the government or the health care industry, they’ll need the certification. That will require quite a bit of cooperation from the supply chain.
No one mentioned concerns over the political climate in Washington. Are the headlines overplaying its impact? Is that not a worry for your companies?
Fowler-Bartman: From my point of view, it might be a little bit. I’m looking at this from a sustainability perspective with questions regarding what the EPA might look like in the future. The government is really purchasing products that are shown to be made more sustainably and that really drives more products to be manufactured that way. A lot of this is voluntary. The big companies are going to continue to do it. You can’t really say that for the smaller ones if they didn’t have to invest the money with hiring us to be the consultant or pay for the certification.
Kuske: There are many things about it that I’m personally concerned with. But many of us are, from a business perspective, probably uniquely set up to do well with whatever happens. I think being West Michigan manufacturers, a lot of that uncertainty actually plays in our favor … because our manufacturing is here, our desire to hire is here. If (the political climate) were to create so much uncertainty that markets started (to contract), that’s a different issue. If companies started to become conservative in their spending and holding off on capital — which definitely could be a reality — uncertainty is not good from that perspective. But so far, the corporate market and client environment hasn’t yet gotten too skittish. I think most people feel like they have a contingency plan. Until you know what happens, all you can do is keep executing as well as you can in the environment you understand today and maybe be prepared for a couple things you think are going to come. None of us can predict the future.